MANILA -- Implementing the net stable funding ratio (NSFR) under Basel III might hurt both universal and commercial banks in the short term, but will ensure the local banking system's stability in the long run.
According to Fitch Group think tank BMI Research, the adoption of the NSFR will make banks less vulnerable to cylical factors as it limits structural maturity mismatches and reforms the asset and liability structures of banks.
As explained by the BMI Research, NSFR is a liquidity supervision tool under the Basel III package that covers long-term aspects and requires the available stable funding (ASF) to exceed the required stable funding (RSF) over a period of one year of extended stress.
The NSFR rule also requires the ratio to be kept at a minimum of 100 percent at all times.
“Banks are likely to feel short-term pain in the form of higher funding and transition costs, while businesses could see the availability of long-term financing drop,” a BMI Research report released on Friday said.
It added that as banks will be discouraged from conducting business with higher RSF and long-term lending, the NSFR roll out poses downside risks to the Philippine economy as businesses rely more on banks for long-term financing rather than the capital markets.
“However, we note that this is unlikely to be a big issue for most Philippine banks given that the overall industry loan-to-deposit ratio stood at 74.3 percent as of April 2018,” the Fitch Group unit pointed out.
“We believe that the adoption of the NSFR under Basel III by Philippine commercial banks will be positive for financial stability over the long-run,” it added. (PNA)
